Make Britain Great Again
The UK signalled a major policy doctrine on crypto. And the Royal Mint plans to issue NFTs
This is going to be a big week of regulation in the crypto world.
We had our (India’s) own amendment to the Finance bill go live on Apr 1.
Janet Yellen, the Treasury Secretary of the US and former chair of the Fed, is set to give her first major address on Crypto tomorrow (we’ll cover that as well in a separate post)
And yesterday, Britian signalled a new doctrine on crypto, a monumental step forward in regulating crypto and bringing it further into the mainstream economy.
In this post, we unpack the speech given by John Glen, the Economic Secretary to the Treasury of the United Kingdom, at the Innovate Finance Global Summit (full transcript is here). This speech was initially due to be given by Rishi Sunak (the chancellor of the exchequer, a fancy term for Finance Minister)
What is the UK government’s broad stance on crypto going forward?
On this, the United Kingdom has vociferously declared that the country is open for cryptocurrency businesses. The internal consensus is that this technology has profound implications across several industries, and the UK intends to be a “global hub for crypto - the very best place to start and scale crypto companies” (sic)
We’ll get into the specifics of the immediate steps the government is taking in the next section. But this stance is likely to drive huge inflows of financial and human capital into the UK, a massive boost to the economy that is still reeling from some after-effects of COVID and Brexit.
It is important to note that we are already witnessing capital and talent flight from unfriendly crypto nations. India’s new crypto tax laws (which is widely viewed as delibitating to the industry), is causing several companies to move HQs and talent to other countries like Singapore or Dubai. As the chasm grows between friendly and unfriendly governments, this migration is likely to become even more pronounced, and the UK has positioned themselves as a prime destination.
What are the salient points of the immediate plan proposed by the government?
Bringing stablecoins to the mainstream - UK plans to go ahead with bringing in select stablecoins into the payments framework. In Jan 2021, the government had released a consultation paper on regulatory framework around stablecoins, which they released a consoldiated response in Apr 2022 (link is here - it’s a long read though).
The implications of this are huge. This will encourage consumers to own, invest and spend in stablecoins. Businesses are also likely to start accepting payments in this new form factor, and more importantly, are likely start maintaining a part of their treasury in the form of stablecoins.
Beyond this, the regulatory framework will also serve as a guidepost to other countries. USDT and USDC (the two stablecoins with the highest market cap), both faced controversies over the maintenance of adequate USD cash reserves against the coins issued. A clear regulatory stance on this, along with rules on timely audits, would bring greater legitimacy and drive further adoption of stablecoins.
Legalization of Decentralized Autonomous Organizations (DAOs) - In some ways, DAOs mirror public entities with distributed ownership. For instance, in public corporations, ownership is defined by shares, in DAOs, this is is defined by governance tokens.
There are a few other similarities, but I’m afraid that’s largely where it ends. DAOs don’t have mandated directors & officers (who are liable for company actions). DAOs often don’t have minority shareholder protections, so a clutch of owners who have majority of the tokens can rewrite the underlying rules or code. And in the case of a dissolution or bankruptcy of a DAO, minority owners can often be left in the lurch.
UK has taken a bold new step into defining legal status of a DAO under English law. This will likely make DAOs a viable alternative to a public corporation for distributed shareholding, and will catalyze the participation of DAOs in the real-world economy (e.g. in owni
Investment / tax changes for crypto - The UK already has fairly clear rules on tax reporting for crypto investments. Expanding on this is now a priority - the secretary announced plans to address issues of treatment for DeFi loans & staking, and to allow investments firms in the UK to include cryptoassets in their portfolio.
We’re likely to see a dramatic increase in the participation of institutional funds in crypto assets and DeFi, and UK is positioning itself as the epicenter of web3 finance
Policy innovation - The UK announced an extension of the Financial Conduct Authority’s (FCA) fintech regulatory sandbox to include ‘crypto-sprints’. This is aimed to provide the same impetus to crypto as it gave to fintech a few years ago.
In addition, they are also setting up the Cryptoasset Engagement Group, that includes industry bodies, FCA, and Bank of England, as the premier policy think-tank for crypto. These bodies can sometimes be just symbolic, but even then, symbols matter, especially with a polarizing technology like blockchain.
And if all this wasn’t sufficient to signal their intent, the Royal Mint of the UK will be issuing a NFT in a few months. There is no further information today on what the NFT is likely to be. Although personally, I sincerely hope it is some form of Royal Family Trading Cards - it’ll be hilarious if they are worth less than BAYC.